The EUR/USD pair fell most of the session on Monday, but did bounce towards the end of the day also the 1.34 level in order to form a bit of a hammer. This hammer is just below the substantial 1.35 level of resistance, and as a result will be watched very closely by us. If we can get above the 1.35 level on a daily close, which looks more and more likely, we are willing to not only go along of this pair, but hang on to the trade for quite some time.
If we managed to break the 1.35 level, this would be the breaking of a neckline on a massive inverted head and shoulders. This head and shoulders pattern suggests that we will see a print of 1.50 before it’s all said and done. At this rate, it appears that many of the world’s central banks are looking to devalue their currencies at the same time Europe seems to suggest that they are going to do nothing to expand monetary policy, therefore giving traders the “green light” to start buying Euros hand over fist. While this dynamic is in the market, along with both America and Japan printing currency hand over fist, it suggests to us the this pair will continue to grind higher – perhaps over the long run.
If you look at the longer-term charts for this pair, you will notice that the pair could be considered to be in a massive consolidation rectangle. From a longer-term perspective, but 1.20 level offers quite a bit of support while the 1.50 level offers quite a bit of resistance. With that being said, the 1.35 level is exactly halfway between the two and therefore a bit of “equilibrium” in this market. Because of this, it makes sense that the pair is treating this area as this important.
As long as the Federal Reserve continues to weaken the US dollar, we fully expect that the Euro will continue grinding higher. After all, several members of the ECB have recently suggested that they are comfortable with the fact that the Euro is as strong as it is. Also, in a bit of comedy, Mr.Draghi recently suggested that he believed countries would abide by the agreement not to debase currencies and the last G20 meeting. Because of this, it doesn’t look like the ECB is anywhere near doing monetary policy.
Written by FX Empire